How does cross-border payment work in India?

Cross-border payments have long been an important component to global trade, remittances and financial services all over the world. According to the World Bank, India received approximately $111 billion in remittances in 2022, making it the top recipient of inward remittances globally. There has been significant growth in the area of cross-border payments in the last few years, led by a mix of regulatory advancements and fintech innovations.

Recently, the Reserve Bank of India (RBI) approved the international expansion of UPI. This would make transactions between India and multiple countries, like Singapore and the United Arab Emirates (UAE) even easier. Cross-border payments have come a long way in the last few years. Here, we take a look at this evolution, and the way ahead in the payments landscape. 

India's economic expansion and increasing global integration have heightened the need for an efficient cross-border payment system. As businesses expand internationally, the ability to move money quickly and securely becomes a necessity. But why? Let’s find out.

1.Rising trade and export growth 

India has emerged as a global hub for services and manufacturing. According to RBI, India’s IT and ITeS exports stood at $194 billion in FY22, a number which is expected to only go up. As more Indian companies tap into the growing global opportunities, a seamless, cost-effective and rapid cross-border payment infrastructure is essential.

2. Increase in outward and inward remittances 

India is the largest recipient of remittances globally, receiving $111 billion in 2022, per the World Bank. Meanwhile, outward remittances from India grew by 29% in 2023, a result of increased foreign investments, educational expenses and business transactions. This increased volume of transactions needs smoother payment solutions to ensure faster and seamless funds transfers. 

3. High transaction costs and processing delays 

Traditional cross-border payment methods often involve multiple intermediaries. This leads to high fees and extended processing times. According to the Federation of Indian Export Organizations (FIEO), 85% of Indian exporters said that payment delays and high transaction costs were major barriers to international trade. These inefficiencies can create liquidity issues for businesses.

4. Increased regulatory and compliance requirements 

Cross-border payments are subject to strict regulations, including Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. While these measures are essential for controlling financial crimes, they can also create bottlenecks. Such regulations increase the complexity of transactions. Businesses must navigate various legal frameworks, making streamlined compliance solutions a necessity.

5. Digital Transformation and Fintech Sector

Fintech innovations, including blockchain-based settlements, artificial intelligence-driven fraud detection and real-time payment processing, are revolutionising the global payments industry. The rise of digital payment platforms has lowered transaction costs, improved speed and increased transparency. With RBI expanding UPI for international transactions, India is ready to capitalise on these advancements.

6. Globalization of e-commerce and the gig economy

The rapid growth of cross-border e-commerce and the gig economy has further amplified the demand for efficient international payments. Indian freelancers, small business-owners and service providers require payment solutions that cater to multiple currencies with minimal conversion costs. 

Platforms like Xflow, Payoneer and Wise have emerged as game-changers in this sector.

7. Need for enhanced security and transparency 

Fraud and security risks remain critical issues in cross-border payments. Many transactions lack transparency, leading to hidden charges and unexpected currency conversion fees. Emerging technologies such as distributed ledger technology (DLT), smart contracts and AI-powered compliance tools are reshaping the sector. 

8. Shift towards instant payments 

Several countries are moving towards real-time cross-border payments, significantly reducing settlement periods. The G20 initiative to enhance cross-border payments aims to lower costs, improve speed, ensure greater accessibility, and enhance transparency. India’s regulatory push toward integrating its domestic payment systems with international counterparts will drive the future of global transactions.

In short, the transformation of cross-border payments is no longer a choice but a necessity. With rising trade volumes, increasing remittances and a rapidly expanding digital economy, businesses need to leverage emerging technologies and modern financial infrastructure to stay ahead. The transition to faster, more secure and cost-effective international payment systems will be a key driver of economic growth in India.

The evolution of cross-border payments in India has been a transformative journey marked by innovation, regulatory changes and the emergence of fintech disruptors. The cross-border payments space has been dominated by banks and intermediary institutions that processed transactions through legacy systems such as correspondent banking and Society for Worldwide Interbank Financial Telecommunication (SWIFT).

Here’s how cross-border payments have evolved:

1. Legacy systems and their challenges 

Historically, cross-border payments were facilitated by correspondent banking networks, which required multiple intermediaries to process transactions. This method faces several challenges:

• High costs: Each intermediary in the payment chain imposed transaction fees, leading to inflated costs.
• Slow processing times: Settlements could take multiple days due to time zone differences, intermediary processing, and compliance checks.
• Lack of transparency: Senders had limited visibility into the status of transactions and the associated costs.

Additionally, the reliance on SWIFT meant that banks had to process payments in batches rather than in real-time, further contributing to delays and inefficiencies.

2. The rise of fintech and digital payment providers 

The advent of financial technology (fintech) companies has revolutionised the cross-border payments industry by introducing cost-effective, real-time and transparent solutions. Several factors have contributed to this transformation:

• UPI’s international expansion: The Unified Payments Interface (UPI) has begun integrating with cross-border networks in Singapore and the UAE, enabling seamless and instant fund transfers.
• Alternative payment providers: Companies like Xflow, Payoneer, Wise, and RazorpayX offer specialised international payment solutions tailored for businesses, reducing dependency on traditional banking channels.
• Blockchain and distributed ledger technology (DLT): Platforms like RippleNet and JP Morgan’s Onyx leverage blockchain technology to enable near-instant settlements, minimizing the need for intermediaries and reducing transaction costs.
• API-Driven banking solutions: Open banking initiatives have allowed fintech firms to integrate directly with banking infrastructure, offering businesses greater flexibility and control over their international transactions.

3. The role of government and regulatory advances 

Regulatory bodies such as the Reserve Bank of India (RBI) have played a crucial role in innovation in cross-border payments by introducing:

• Liberalised Remittance Scheme (LRS): This scheme allows Indian residents to remit up to $250,000 per year for various purposes, including foreign investments and education.
• Regulatory sandboxes: The RBI has implemented regulatory sandboxes to enable fintech firms to test cross-border payment solutions under controlled environments before full-scale deployment.
• Foreign Exchange Management Act (FEMA) Reforms: Updates in FEMA regulations have facilitated smoother trade transactions and reduced foreign exchange bottlenecks.

4. The future of cross-border payments in India 

As India moves towards a more digitised financial ecosystem, cross-border payments will continue to evolve in the following ways:

• Greater integration with international payment systems: The expansion of UPI, RuPay, and real-time payment solutions in foreign markets will improve accessibility and reduce reliance on traditional banking networks.
• AI-driven compliance and fraud prevention: The integration of artificial intelligence (AI) and machine learning (ML) in regulatory compliance will streamline Anti-Money Laundering (AML) and Know Your Customer (KYC) processes.
• Instant payment settlements: Emerging technologies such as Central Bank Digital Currencies (CBDCs) have the potential to further enhance cross-border payment efficiency by eliminating intermediary banks altogether.

Regulatory compliance has been a persistent challenge in cross-border payments, particularly when it comes to AML and KYC requirements. The involvement of multiple regulatory jurisdictions, varying compliance standards and strict monitoring requirements often slow down international transactions. This leads to higher costs and operational obstacles.

1.Automating compliance processes 

RegTech leverages artificial intelligence (AI) and machine learning (ML) to automate compliance procedures, ensuring that financial institutions adhere to evolving regulatory frameworks without manual intervention. Traditional compliance mechanisms required banks and payment providers to manually verify documents, check customer backgrounds, and cross-reference multiple regulatory databases, which was time-consuming and error-prone.

With RegTech solutions, AI-powered tools can:

• Automate document verification through Optical Character Recognition (OCR) and facial recognition technologies.
• Identify fraudulent activities by analysing large transaction data sets in real time.
• Reduce false positives in transaction monitoring by improving risk assessment models through data-driven insights.

2. Enhancing fraud detection and risk mitigation 

Cross-border transactions are particularly vulnerable to financial crimes such as fraud, money laundering, and terrorism financing. Traditional systems rely on rule-based models that often fail to detect sophisticated fraud patterns. RegTech, however, enables predictive analytics and behavioral biometrics to identify suspicious transactions before they occur.

Key benefits of RegTech in fraud prevention include:

• Real-time risk scoring, allowing financial institutions to flag high-risk transactions immediately.
• Pattern recognition in transaction history, detecting anomalies and identifying bad actors.
• Geolocation and device fingerprinting, ensuring that transactions align with expected customer behavior.

3. Reducing processing time and transaction delays 

Compliance-related delays are a major bottleneck in cross-border payments. Banks and financial service providers must conduct due diligence, verify identities, and ensure compliance with multiple regulatory frameworks, often leading to delayed settlements.

RegTech addresses these inefficiencies by:

• Implementing smart contract-based compliance, reducing the need for redundant manual verification steps.
• Streamlining KYC through blockchain-based digital identities, allowing instant authentication and approval of transactions.
• Enhancing transparency in regulatory reporting, ensuring seamless cross-border compliance checks.

4. The future of regtech in cross-border payments 

RegTech is expected to play an even greater role in the future of cross-border payments as financial institutions increasingly rely on technology to navigate compliance complexities. Some emerging trends include:

• Artificial Intelligence-driven regulatory reporting, reducing manual intervention in data submission.
• Decentralised identity verification through blockchain, making cross-border transactions more secure and instantaneous.
• Expansion of real-time compliance monitoring, enabling governments and regulatory bodies to detect and prevent illicit financial activities in real time.

As businesses and financial institutions continue to embrace RegTech solutions, the global cross-border payments ecosystem will become more secure, efficient, and cost-effective, ensuring compliance while reducing operational inefficiencies.

Guess who is changing the game for cross-border payments in India by addressing the daily struggles businesses face. It’s Xflow. Traditionally, dealing with international payments meant dealing with unclear costs, delayed processing and complicated compliance rules. Xflow simplifies all of this. Businesses can manage their finances more confidently by delivering full transparency on exchange rates and fees upfront. Its dashboard makes it easy for founders and finance teams to keep track of payments. It’s more than just a tool.

The transformation of cross-border payments in India is moving at an accelerated pace, amplified by technological innovation, regulatory support and increasing global trade. Fintech disruptors, blockchain solutions and AI-powered compliance mechanisms are making transactions faster, safer and more cost-effective than ever before.

However, challenges remain, including ensuring regulatory alignment and building trust in emerging technologies. Financial institutions, fintech providers, and regulators must work collaboratively to create a seamless cross-border payment infrastructure that meets the needs of modern businesses.

The growing emphasis on frictionless international transactions, reduced foreign exchange volatility and improved financial inclusion suggests that the future of cross-border payments will be increasingly digital and automated. Governments and financial bodies need to work hand-in-hand with fintech leaders to develop frameworks that not only encourage innovation but also look into security and compliance measures.

1. What are cross-border payments?

Ever sent money to someone in another country or paid for something from an international seller? That’s a cross-border payment. It’s basically any transaction where the sender and receiver are in different countries. These payments are a critical part of the global trade economy. 

2. How do cross-border payments work?

Think of it as sending a letter internationally, but it is way more complex. This is how they work:

Step 1: You initiate a payment.

Say you are a freelancer in India and your US client wants to pay you. They send the money through their bank or a payment platform.

Step 2: Currency conversion

Dollars get converted into rupees (or any local currency).

Step 3: Intermediaries

Traditional systems use multiple banks or networks (such as SWIFT) to route the payment.

Step 4: Regulations and compliance checks

To prevent fraud and money laundering, checks like KYC (Know Your Customer) and AML (Anti-Money Laundering) are done.

3. What are the benefits of modern payment platforms? 

Modern cross-border payment platforms make life easier, but how? Let’s find out:

1. Helping businesses expanding globally

A startup in India can now sell to US customers without payment headaches.

(b) Lower costs

Fintechs are cutting out middlemen, reducing fees.

(c) Faster settlements

No more waiting for days for payments to clear. Some platforms even do instant transfers.

(d) More financial inclusion

Freelancers, gig workers and small businesses now have access to global markets.

(e) More transparency

No hidden fees or surprise deductions. You know exactly how much you’re getting.

4. Who uses cross-border payments?

It’s not just big corporations. A lot of small-and-medium-sized businesses rely on cross-border payments– software companies, e-commerce sellers, manufacturers, other exporters.

5. How can you start with cross-border payments?

If you have ever struggled with international payments– unclear exchange rates, long wait times and annoying paperwork– there’s good news. Xflow is making things ridiculously simple.

Here’s how you can start:

Step 1: Pick the right platform

Traditional banks are slow and expensive. Instead, opt for a modern solution like Xflow that’s built for speed and transparency.

Step 2: Complete basic verification

A few KYC steps and you are good to go.

Step 3: Connect your bank account

Link it up and start receiving payments.

Step 4: Know your rates upfront

Xflow tells you the exchange rate and fees before the transaction, so there are no surprises later.

Step 5: Track everything in real time

Unlike traditional banking, Xflow gives you a clear dashboard where you can see every transaction in real time.

To getting started with Xflow, sign-up here

More articles:

1. Reducing barriers for cross-border money transactions
2. Why modern platforms are essential for global businesses
3. 4 signs you need to rethink the way you collect international payments